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Title Slide: Employees vs. Contractors | With Luella Schmidt
Luella Schmidt: We get asked this question a lot, what the difference is between employees and contractors. The deal is we get a lot of business owners where they think, well, I’ll just save on payroll taxes, I’ll just pay everybody as a contractor and they think that you can just do that. Unfortunately, the federal government has a set of rules that you have to follow, sort of guidelines on how to determine whether they are an employee or a contractor and the state government also has a slightly different set of rules.
Without getting into the whole list, I think there’s something like nine different things you have to look at. But, you know they really do expect that independent contractors be a business, to file a schedule c, to have a business name, to usually have more that one customer. What happens often, what gets people into trouble is this person they’ve called a contractor, they no longer work for the business and they go file unemployment because there was not an understanding of what that relationship really is. So, people do have to be careful with that.
So just recently the IRS came out with a ruling which was unusual because previously we accountants always advise that it’s kind of a red flag to have a single individual be both a contractor and an employee, especially in one calendar year because then they are getting a W2 and a 1099 at the same time. But there was just a ruling that came out that the IRS said in this particular instance anyway it was okay because the individual was working two very distinct roles; one she really was a contractor and in the other role she really was more of an employee.
So, as long as those points that they give you, the IRS, that is, on how to determine whether it is an employee or a contractor, as long as you are following those guidelines apparently it is okay.